FFF: Budgeting Your Freedom

If you followed along with our brainstorming session last week, you should have a more defined idea about what you would do if you could do anything with your life.  Our next step to see what we’re going to need, moneywise, in order make our dream into a reality.  (This shouldn’t be that much of a surprise; this is a personal finance blog, after all.)

Now, don’t panic, but we’re going to have make up a budget.  I’ll do my best to make this as painless as possible.  Besides, since we’re budgeting for your ideal future, I’m hoping that you can overcome any objections you might have to budgeting in general, and instead focus on the pleasant thoughts of that future.  You can, of course, apply similar techniques to budget for your current lifestyle, but I know it’s more fun to think about the future and how much better things will be then.

The First Result I Got For An Image Search Of 'Freedom'
The First Result I Got For An Image Search Of 'Freedom'

Now, a few last comments before we get into the nitty gritty of our calculations.  First, as with any budget, it’s best to overestimate your costs and underestimate your income.  It’s hard to know with absolute certainty what your costs will be even a month or two in advance, let alone years or decades down the road, so it’s good to give yourself a healthy margin of safety, even at the cost of delaying the day when you can tell your boss where to stick it.  Second, try not to get too bogged down on exact figures; we’re not shooting for precise, down to the last penny figures; rather, we’re trying to get a general idea of what you need to save and earn.  Lastly, have some fun with it; you’re trying to create the budget for a perfect future, so there’s no reason you shouldn’t enjoy it.

Your Financial Freedom Budget

To help you come up with a simple budget, I whipped up a simple budget sheet you can edit with your own personal details.  Be sure to check it out; it’s a pretty simple spreadsheet, one that you could probably make yourself if you were so inclined.  If you’ve never created a budget before (at least, in spreadsheet form), this should give you an idea of what you need to include.  Or hey, try playing around with the provided sheet; that’s why I created it.

To help you fill it out with your ideal lifestyle, here’s a short guide to the information required.  The first box is where you fill in your living expenses.  Unlike most of the spreadsheet, you’re going to be filling in monthly (not annual) values; it’s probably easier for most people to determine how much their rent, utilities, food costs, etc., cost on a monthly basis than annually.  (I was going to use my actual expenses, but my current living situation as a starving grad student is far from where I would be ideally, so I made up some more appropriate values to serve as a template.)  One particular note: I included retirement saving in the monthly budget; even though your dream job is something you wish you could do forever, it’s good to keep up your retirement savings, just in case you find yourself unable (or unwilling) to keep working decades from now.

The spreadsheet automatically calculates the annual cost for you based on the total of your monthly expenses, as you can see at the bottom of the first box.  If you have quarterly or semi-annual expenses (insurance, for example) you can divide by an appropriate number, or…

Put your annual (and quarterly/semi-annual) expenses in the second box.  If you have magazine subscriptions you renew annually or yearly membership dues you need to pay, you put those expenses here and they’ll be incorporated into your budget.  (For something like insurance or other semi-annual/quarterly expenses, simply multiply by the number of times you bill the bill each year and use that value.)  Since this is a fantasy budget, I included spots for several yearly trips in the budget.  (I used Japan (one of the places my Sondra and I want to visit), California (Sondra’s native state, and a fun (albeit expensive) place), and the World Wonders (why not?); you could use whatever places you’d like to visit, or no place at all.)  Once again, there are a few extra lines if you have annual expenses I didn’t include (Or have more than three places you want to visit annually).

The third box allows you to try to plan for ‘once and done’ expenses, the sorts of things you don’t need every year, but still want to plan for.  If you want a new house, a fancy car, your own boat, here’s where you can incorporate the expense.  Since it’s unlikely that you’ll be able to spend tens, hundreds of thousand dollars on these expenses each year, I added a column so that you can determine how many years you wish to take to save up for these purchases.  Put in the cost of your dream items, the number of years you’re going to take to save up the money, and the spreadsheet will calculate your annual saving amount.  (Note: unless you intend to get a new car every three years (as my example spreadsheet shows) or, say, a new home every ten years, once you’ve saved up enough for the purchase, you won’t need this amount in your budget.  Still, it’s better to save too much.)

The fourth box adds up all your expenses, and gives you an overview of both the annual and monthly expenses.  The fifth box is where we look at the other side of the coin, your annual income.  You have the opportunity to include your ideal job’s income, any income you expect to earn from side work (maybe from making crafts or writing a blog), portfolio income (dividends from stocks, interest on bonds, etc.), and passive income (from rental income you own, for example).  One note on the values you should use: more than anywhere else, be conservative in your estimates here.  Yes, if your ideal job is an actor, it’s tempting to look at George Clooney’s income and use that for you income value; unfortunately, few actors ever reach that level, so you should probably use a much lower value to give you a margin of error.  (Of course, if your ideal job is not having to work at all, you can fill in a zero in this value to help determine how much passive/portfolio income you need to earn.)

The sixth (and final) box spells out the bottom line: how much money you’ll have extra or need to make up to fund your ideal lifestyle.  If the value is positive, congratulations!  As long as your estimates are on target, you should be able to live your ideal lifestyle, working your ideal job, without financial difficulty.  If you don’t have the skills to get your ideal job yet, that’s the only real obstacle standing in your way, so get out there and start building your skill set.

If the number is negative, though, there’s a bit of problem; you have a deficit you need to make up.  The numbers will indicate how much you need monthly, annually, and the lump sum you’ll need to cover the deficit with interest income.  How you go about closing that gap is up to you; next time, we’ll try to cover some possibilities in more detail.  Until then, keep planning your freedom!

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